Caribbean, Latin America region seeing 'golden era' of travel
Caribbean, Latin America region seeing 'golden era' of travel
Higher costs, global conflicts redirecting travel demand
Juan Corvinos, of Hotel Equities CALA, right, speaks alongside Javier Coll, of Mullen Hospitality Management, left, about the demand drivers in the Caribbean and Latin America region at the Americas Lodging Investment Summit CALA conference. (Bryan Wroten)
https://www.costar.com/article/382076121/caribbean-latin-america-region-seeing-golden-era-of-travel?
By Bryan Wroten
CORAL GABLES, Florida — The Caribbean and Latin American region holds a lot of promise for hotel companies, but it's not a guaranteed success for just any venture.
During an executive panel at the Americas Lodging Investment Summit CALA conference, hotel executives said the region is taking off, and hoteliers can ride along with it provided they know what is required of them.
It is one of the most fluid areas in the world, said Juan Corvinos, president of Hotel Equities CALA. It is a specialty niche, and people who work in this area are often solely dedicated to it.
“We are specialists in a moving target,” he said, adding that each country in the region has its own jurisdiction’s election cycles.
There are so many factors that affect hotel supply and demand, he said.
With all that in mind, however, the region is seeing “a golden era” with U.S. consumers, this year in particular, Corvinos said.
“We all as an industry have an opportunity to convince people who have not thought about our region that we should be their main, leading destination for travel,” he said. “That’s all of our challenges. … I can’t think about a better time for us than we rely on the North American market, both Canada and the U.S., and intra-country, to benefit from this surge in travel as fuel costs rise, as things are happening in the Middle East.
“It is the best time that I’ve ever seen in my career,” he said.
The region is in the perfect cycle at the moment, and it has long-term growth potential, Baha Mar President Graeme Davis said. The Bahamas are like the Hamptons of South Florida as they are 30 minutes away by plane, he said. Geopolitically, it’s a safe destination with stable currency rates compared to the U.S.
The region as a whole is seeing a 40% lift in arrivals from Canadians flying over the U.S. to the Caribbean, he said.
“I think that’ll certainly continue for the next few years,” he said. “I think people are now discovering, from Canada, even more so, the Caribbean. I think we’re even now seeing European business. Instead of looking east to the Middle East, they’re now actually looking to come to the Caribbean, as well.”
The Baha Mar team is constantly looking for opportunities to make sure they’re marketing to potential travelers, he said. There will always be lower cycles, hurricane seasons, and unknowns, but the foundation is strong, and the region is opening up and creating more awareness.
“That’s going to build for the future that they weren’t looking at before but are now looking at it, and we’ll continue to build on it,” he said.
About 15 years ago, roughly 30% of Americans had a passport, said Javier Coll, president of Mullen Hospitality Management. Now it’s close to 50%, and Europe is at 99%.
“There’s a lot of potential in the American market, the natural market for these destinations,” he said. “The Europeans have been stable for a long time. Some countries went up, and they went down, but Americans are growing every year. So what that means is that the potential for us to keep growing in these destinations is pretty big.”
The distance of the region from the U.S. is a positive when considering the limited amount of vacation time Americans take each year, he said. They don’t want to go too long, too far, so being between three and four hours away as a destination makes it an ideal place to travel.
“There’s no other place to go unless they want to travel within the United States,” he said. “If they want to go to the beach that is not in Florida or California, that’s Mexico, that’s the Dominican Republic, that’s the Caribbean islands.”
These countries are enjoying a post-pandemic boom, but Jamaica is still recovering from last year’s Hurricane Melissa, Coll said. That’s driving a lot of business to other parts of the region.
“That’s going to eventually change,” he said. “The moment Jamaica opens, everything is going to be stabilized, and we’re taking that into account for our underwriting, for our projections to owners. We’re not presenting projections that keep going up. That’s not really healthy.”
It’s important for investors to know that demand and performance won’t go up forever, he said. It’s not going to go down, but eventually it will go flat.
Corvinos echoed Coll’s sentiments, saying no one should assume constant growth in the region without rising costs. Dollar per dollar, it’s getting more expensive to operate in CALA, including Mexico, where labor costs alone are expected to rise 12% to 18% this year.
“It is important to realize that we are in a very competitive environment, but assuming ceteris paribus [all else being equal] is not a strategy, it's madness,” he said.
One way to success in the region is establishing relationships with local landowners and officials, said William Phelan, Dominican Republic country manager for Cisneros and president of the company's under-development Tropicalia project. To be a good developer in the region, the Tropicalia team needs to be good neighbors. Early in the resort’s development process, they reached out and created a coalition of local landowners to work together and fill the needs of the Miches region in the Dominican Republic.
“We knew that nobody else was going to take care of them and nobody else was going to address them, so we sat at this table,” he said.
The coalition members realized they needed roads for access, so the landowners and developers worked together and, through a public/private partnership in 2020, started putting money into Miches to build roads. The area needed water, so it built a municipal aqueduct.
“We are the first tourism area in the Dominican Republic to be connected to a municipal aqueduct, and that was done through provincials,” he said.
They wanted a say in what would happen with the beaches, so they worked with the government and requested co-management of a large natural marine protected area that neighbors the resort, he said.
“We’ve done this because we’re obviously looking long-term at protecting our investment through a group of like-minded individuals,” he said.
The US markets that drove hotel performance in the first quarter
Urban markets saw improved demand levels
Executives at several hotel companies said their urban market properties reported improved performance during the first quarter. San Francisco received several mentions during recent earnings calls. (Getty Images)
https://www.costar.com/article/355049996/the-us-markets-that-drove-hotel-performance-in-the-first-quarter?
By Bryan Wroten
Hotel performance came in better than brand and real estate investment trusts previously projected during the first quarter, and that allowed recovering markets to continue improving, and those that struggled to try turning things around.
During their companies' respective first-quarter earnings calls, executives at hotel brands and REITs outlined the performance of the markets and market types where they've built their portfolios.
Joan Bottarini, Chief Financial Officer, Hyatt Hotels Corp.
"Performance was led by our full-service hotels, which benefited from strong leisure demand, including at our resorts, which had a particularly strong March. Group [revenue per available room] was up 1.2% in the face of more difficult comparisons in Washington, D.C., due to the January 2025 presidential inauguration."
Mark Hoplamazian, President and CEO, Hyatt Hotels Corp.
"We had several notable openings in our lifestyle brands, including the Andaz Lisbon, which strengthens our lifestyle brand presence in Europe; Andaz Shanghai ITC, a luxurious and modern addition to our already strong brand presence in Greater China; and the Livingston, our first hotel in Brooklyn, New York. These openings reflect our continued focus on expanding our portfolio in high-demand markets with differentiated offerings. With many exciting additions to our lifestyle portfolio slated to open in 2026 and further strengthening our position as a leader in lifestyle offerings at scale.
“We also continue to see strong momentum in our Essentials brands, entering seven new markets during the quarter. This included the expansion of our upper-midscale portfolio with several UrCove by Hyatt openings as well as the third Hyatt Studios property in the U.S. These brands are an important driver of our growth strategy, allowing us to expand our brand footprint in markets where we have significant white space while also offering attractive economic returns to owners."
Geoff Ballotti, President and CEO, Wyndham Hotels & Resorts
“Our three largest states of Texas, California, and Florida, which account for one-quarter of our U.S. room count, improved by 800 basis points sequentially from down 11% in [the fourth quarter] to down only 3% in [the first quarter]. The [fourth quarter] strength we saw in our Midwest and industrial states continued into [the first quarter] in Iowa, Illinois, Michigan, Oklahoma and Wisconsin. … The Midwest, infrastructure states collectively, were up 8% [in RevPAR]. …
“We saw it specifically in states like Texas, which we talked about the combination of Texas, Florida,ing and California improving 800 basis points — but Texas alone was a 700-basis-point improvement, and it was up 2% year over year, which was great to see. And we have 700 hotels in Texas, 2% up for the quarter. That was a big-deal improvement, of course, in California and Florida.
“We saw it, as we talked about across the Midwest, infrastructure states collectively, a big group of them, up 8%. We're seeing corporate contracted in that everyday business pick up. And sequentially, it was both occupancy and rate. We saw nongovernment infrastructure pick up, oil and gas pick up — oil and gas market tracks, which are 12% of our room count, picked up by 400 basis points.”
Jim Risoleo, President and CEO, Host Hotels & Resorts
“RevPAR growth in the first quarter was meaningfully better than expected. Strong rate growth was enabled by resilient demand despite estimated weather impacts of approximately 120 basis points and tough comparisons to last year. We saw particularly strong performance at our resorts in Florida and Phoenix, as well as in San Francisco, which benefited from the Super Bowl and the ongoing market recovery. Notably, San Francisco achieved 26% RevPAR growth and more than 70% [earnings before interest, taxes, depreciation, and amortization] growth in the quarter, reflecting continued momentum in the market's recovery. …
“First-quarter transient results benefited from Easter in early April, which compressed spring break demand in March, contributing to 9% transient revenue growth at our resorts. Feedback from our properties indicates that ongoing geopolitical uncertainty supported travelers’ favoring U.S. luxury destinations over international destinations. As a result, resort properties delivered particularly strong performance in the first quarter.
“Briefly touching on Maui. RevPAR grew 1.5%, and total RevPAR grew 1.6% as growth was impacted by the Kona Low rainstorm in March. Before the storm, overall demand at our Maui resorts was tracking ahead of our expectations for the first quarter. It is important to note that the impacts from the storm were contained and are not ongoing. We have also seen strong rebookings since the storm. And as a result, we continue to expect Maui to contribute approximately $120 million of EBITDA in 2026.”
Raymond Martz, Co-President and Chief Financial Officer, Pebblebrook Hotel Trust
"And San Francisco was exceptional. While it benefited from the Super Bowl and a large citywide convention that shifted into the first quarter, all segments, including business and leisure transient, were incredibly strong and continue to recover. RevPAR increased a robust 44.5%,; and hotel EBITDA more than tripled from a year ago, climbing by $11.6 million.
"Los Angeles also recovered sharply from last year's fire-related disruptions with RevPAR climbing 31.5% and occupancy growing more than 16 points to 74.6%. The improvement across L.A. properties was broad-based, helped by a stronger leisure demand, improving entertainment-related group and leisure activity and the ramp-up of our recently renovated and rebranded Hyatt Centric Delfino in Santa Monica. L.A.'s [first-quarter] same-property EBITDA increase, we captured all of the EBITDA loss in the first quarter from last year's fires.
"While San Francisco and L.A. were standout markets, they were far from the whole story.
"Our urban portfolio posted RevPAR growth of 14.3%, total RevPAR growth of 12.9%, and EBITDA growth of 55.1%. San Diego urban hotels delivered RevPAR growth of 8.7%, driven by a 900-basis-point jump in occupancy, supported by healthy weekend leisure demand. Chicago also turned in a good quarter with RevPAR increasing 5.6%. Washington, D.C., was our most challenged market in [the first quarter], with RevPAR declining 24.1%, reflecting a very difficult inauguration comparison and continued weakness in government-related travel, though we have seen some recent improvements.
"Boston was another softer market with RevPAR down 3%, reflecting a lighter citywide calendar, two major winter storms, and the rooms renovation at Revere Hotel Boston Common. We expect both markets to improve in the second quarter, given the better event calendars."
Thomas Baltimore Jr., Chairman, President, and CEO, Park Hotels & Resorts
“Results were driven by continued strength in leisure demand at our resort properties, where RevPAR increased 7.6% excluding Royal Palm, along with healthy corporate group demand that helped our urban hotels generate over 2% RevPAR growth during the quarter.”
Leslie Hale, President and CEO, RLJ Lodging Trust
“We were pleased to see our urban footprint outperform the broader industry urban markets, with a number of our markets delivering high single-digit RevPAR growth. Notably, Northern California achieved outstanding RevPAR growth of 27%, benefiting not only from the Super Bowl and the favorable shift of the RSA conference to March this year, but also from the continued expansion of the AI industry, which is driving significant corporate investment and business travel demand broadly across this market in addition to a better overall environment.
"New York City was another noteworthy market during the quarter, with our properties achieving over 8% RevPAR growth driven by healthy corporate and leisure transient demand, a favorable events lineup, and the ramp of our high occupancy renovations that we completed last year.
"As it relates to segmentation, business travel saw robust growth during the first quarter, with our business transient revenues growing by 9%, which was largely demand-driven with room nights increasing by nearly 700 basis points. The momentum in business travel accelerated throughout the quarter, underpinned by strong growth in business investment, driven by AI-related spending as well as record corporate profits.”
Liz Perkins, Executive Vice President and Chief Financial Officer, Apple Hospitality REIT
“Approximately two-thirds of our hotels delivered RevPAR growth year over year despite several markets having challenging comparisons, including wildfire-related recovery business benefiting our California hotels in early 2025 and the inauguration in D.C. This reflects both the diversification of our portfolio and our team's continued focus on hotel and market-level execution.
"Several of our markets stood out as top RevPAR performers in the quarter. Pittsburgh grew 23%, benefiting from multiple sporting events and a strong convention calendar. Alaska grew 21%, driven by strong leisure demand in the market, further aided by incremental crew business. Seattle grew 18% with the return of Boeing production business and additional project-related business at a nearby shipyard. Palm Beach grew 16%, continuing to flourish with both strong leisure and business transient demand. And Memphis grew 14%, capturing incremental medical personnel and airline crew business amid increased government demand in the market.
“Based on preliminary results for April, comparable hotels’ RevPAR increased by over 4%. Despite the ongoing benefit in 2025 from the wildfire recovery business in Southern California, we continue to see broad demand strength across our portfolio and additionally benefited from favorable comparisons over a challenging April 2025, which experienced disruption from government policy-related announcements.”
Jonathan Stanner, President and CEO, Summit Hotel Properties
"In particular, the ongoing recovery in business transient travel is driving better midweek performance as RevPAR growth increased 3% for the quarter, and 10% in March in our negotiated segment. This helped drive double-digit RevPAR growth in a dozen of our markets in March, including urban center direct markets such as Baltimore, Charlotte, Cleveland, Miami, Pittsburgh, San Francisco, and Washington, D.C.
"As a reminder, we expected our first quarter to be the most challenging of the year, given multiple headwinds based on our portfolio. Notably, a difficult Super Bowl comparison in New Orleans, where we own six hotels, and continued weakness in government demand, with those related travel cuts not lapping year-over-year comparisons until the March-April time frame.
"In addition, disruption related to Winter Storm Fern and civil unrest in Minneapolis further reduced first quarter reported RevPAR growth. In total, these events created an approximately 140-basis-point headwind to our first-quarter RevPAR growth, most significantly in January and February. ...
"In addition, consumer prioritization of travel and experiences remains paramount, which has driven resilient leisure demand. And finally, improved industry demand has increasingly been driven by the ongoing recovery and acceleration of business travel, which uniquely benefits our urban-centric portfolio."
Bryan Giglia, CEO, Sunstone Hotel Investors
"Our resorts once again led the portfolio with combined comparable RevPAR growth of over 18%. ...
"We were also quite pleased with performance at our wine country resorts, which turned in a combined 34% growth in RevPAR, driven by better contributions from both group and transient business. ...
"Our urban hotels had a noisier quarter as we navigated a challenging Super Bowl comp in New Orleans and weather-related headwinds across the East Coast. RevPAR declined 9.3% in the first quarter across our urban portfolio, but out-of-room spend performed better and limited the decline in total RevPAR to only 2.9%. ...
"In Boston, the quarterly performance was hampered by the severe winter weather that disrupted travel earlier in the year. Overall, we expect the first quarter to be the toughest quarter for our urban portfolio with sequential growth in RevPAR through the balance of the year.
“Our convention hotels turned in better-than-expected performance with RevPAR growth of 5.2%. Performance varied widely, however, as we experienced the push and pull of a few large events. In Washington, D.C., we had a very challenging comp given the inauguration last year. After increasing over 24% in the first quarter of 2025, RevPAR at our Westin D.C. Downtown was 9.8% lower this year due to the tough comp and higher group attrition from the severe winter storms that occurred in the quarter. Despite this decline, our performance was better than expected as stronger transient demand helped to partially offset the sluggish group backdrop in the market."
Weak World Cup demand not enough to quell hotel asset managers' burgeoning optimism
Sentiment on revenue growth, deals environment improve in survey
A FIFA World Cup advertisement featuring the hashtag #WEARE26 at Newark Liberty International Airport in New Jersey. Hoteliers have raised concerns that travel demand around World Cup matches is coming in weaker than expected. (Photo by: Deb Cohn-Orbach/UCG/Universal Images Group via Getty Images) (UCG/Universal Images Group via G)
https://www.costar.com/article/1897487029/weak-world-cup-demand-not-enough-to-quell-hotel-asset-managers-burgeoning-optimism?
WASHINGTON, D.C. — Hotel asset managers have increasing hopes that their properties will exceed their original expectations for revenue growth this year, but they don't believe the World Cup is going to be a major reason for that.
The spring edition of the Hospitality Asset Managers Association's biannual survey showed an uptick in members expecting to beat budget this year for revenue per available room.
More than half of those surveyed say they expect a 1% to 3% increase in RevPAR this year, with more than 10% projecting an increase of more than 7%. Similarly, more than half of members surveyed expect the majority of their hotels to beat budgeted projections for the full year.
A similar ratio of HAMA members believe the majority of their properties will beat profit estimates for 2026 as well.
Members of HAMA's board of directors said this sentiment was somewhat surprising given it directly contrasts with decreasing hopes tied to the World Cup. The monthlong series was initially projected to buoy hotel performance across the country this summer, but hoteliers so far aren't optimistic ahead of the matches.
"By and large, we've all taken down our estimates for the summer," said Dina Winder, HAMA president and executive vice president of asset management for Highgate, noting the number of people who expect RevPAR to grow significantly has "more than doubled" since their fall survey.
Chad Sorensen, managing director and CEO of CHMWarnick, said the increased optimism might relate to this year being relatively less volatile than 2025.
"Generally speaking, [the first quarter] is playing out the way that we underwrote it as we went through the budget," he said. "Q1 2025 did not play out the way we budgeted and underwrote it. So it's not like the industry has been set on fire."
At this point last year, hoteliers were afraid of the effects widespread tariffs and the resulting economic upheaval would have on their businesses, HAMA members pointed out. This year's prevailing concerns revolve more around the potential of a demand-inducing event — the World Cup — not coming in as strongly as originally hoped.
While performance in the first quarter varied greatly from market to market, HotelAVE Senior Vice President John Paulsen noted the Northeast in particular faced some challenges, including snowstorms in the first quarter. Pessimism around the World Cup seems to be an almost universal phenomenon.
"I think we've all taken it down in terms of what we thought we would do," he said. "It's not the home run we were hoping for, but maybe it's a double."
Sorensen noted the World Cup is challenging not only because demand has come in lighter than expected but also because it chased away other forms of demand.
Much like the fall 2025 iteration of the survey, demand remains the top concern among respondents, although only slightly more than 60% now rank it as a concern compared to almost 80% in the fall. Other top concerns include the war in Iran and wage increases, neither of which was among the top three concerns for hotel asset managers in the fall.
Asset managers seem to be broadly optimistic about the economy, with the number of them expecting the U.S. economy to fall into a recession in 2026 falling to less than 20%. That's roughly half the number of those who expected that in the fall.
There's also been an uptick in asset managers who say they are "actively pursuing acquisitions," which now comes in at over 70%.
Sorensen noted that this is tied in part to monetary policy and how fewer investors are feeling inclined to sit and hope for better interest rates.
"The capital markets are where they're at, and it's not like you can wait it out," he said. "That's what's forcing some of these [deals]. They've just run out of runway, and it's not like anybody believes there's going to be anything much different in the capital market in the next few months."
Productivity at the core: How COOs deliver strategy
https://www.mckinsey.com/capabilities/operations/our-insights/productivity-at-the-core-how-coos-deliver-strategy
By
For the COO’s productivity mandate, the time to act is always. Six best practices can help.
Every chief operating officer (COO) knows this simple truth: Delivering the company’s strategy isn’t just part of the job—it is the job. While there are many paths to achieving that goal, none can succeed for long without increased productivity, the foundation for financial performance and economic growth.
Since the 2008 global financial crisis, global productivity growth has largely declined around the world. Even before the crisis, advanced economies’ productivity growth receded from 2.2 percent annually between 1997 and 2002 to 1.6 percent between 2002 and 2007. It dropped further once the crisis receded, to under 1.0 percent in the decade between 2012 and 2022. This means that productivity growth declined across millions of businesses.
Yet recent McKinsey research on 8,300 large companies in the United States, the United Kingdom, and Germany also finds that just 2 percent of companies account for 63 percent of national productivity growth. That’s an extraordinary inspiration for companies to seek consistent, year-over-year productivity performance. In virtually every organization, the person most responsible for raising productivity is the person who oversees the company’s operations: the COO (see sidebar, “The role and title of the COO”).
Productivity, like so much else in operations, is a matter of strategic prioritization. COOs need to cultivate a culture and mindset of productivity across all operational functions, and COOs often need to make nuanced decisions—accepting losses in some areas to earn outsize gains in others. The goal of this article is to analyze those critical considerations, revealing six best practices that equip leaders to navigate the complexities of the productivity imperative with clarity and confidence.
Productivity: The strategic lever for business success
At its core, productivity measures how effectively inputs (generally, capital, labor, or operational expenses) are converted into outputs (products and services). Companies that operate more productively generate higher returns, which allows them to attract and reinvest capital, fueling a cycle of faster growth and even greater returns. A successful business creates economic profit, where the ROIC exceeds the cost of capital. High ROIC signals a business model with a clear competitive advantage.
For businesses, this translates to higher efficiency, reduced costs, and increased profit margins—gains that can then be reinvested in innovation, talent, and market expansion to drive sustained profitability and growth—both for companies and societies. Indeed, McKinsey Global Institute research projects that if advanced economies can regain their pre-2008 productivity growth rates, GDP per capita could increase by $1,500 to $8,000 by 2030.
Who can recharge companies’ productivity growth? While productivity strategies differ across industries, the COO plays a central role in turning strategic objectives into operational reality. Productivity is not only about cost cutting; it’s about how operational excellence can drive continuous improvement in revenue, cost, and capital efficiency—all drivers of ROIC. In doing so, COOs can reignite productivity as a strategic lever for sustained strategic advantage, innovation, growth, and resilience.
If you’re a company, productivity is one of the best predictors of the fortunes of your business. … If you look at [even a narrow slice of an] industry or market, you’ll find big differences in productivity across the businesses that operate within that. … Without exception, the more productive businesses are much more likely to survive. They’re more likely to grow faster. If you want to be a successful business, you need to be a highly productive business.
Chad Syverson, George C. Tiao Distinguished Service Professor of Economics at the University of Chicago Booth School of Business
Unleashing productivity to drive ROIC
The operational levers a COO can pull to increase ROIC draw from three sources of productivity improvement: external spend (for materials and other inputs), labor, and assets (typically machinery and other long-lived equipment).
External-spend productivity: Increasing value from material and nonmaterial spend
Increasing external-spend productivity is crucial because the additional value directly improves an operation’s profitability. The familiar process of optimizing material usage, reducing waste, and controlling indirect spend helps businesses reduce input costs while maintaining or improving output quality and environmental performance. The greatest impact comes from a balance of discipline in the foundational practices of spend management and creativity in considering new, innovative paths to productivity.
Reduce direct costs. The first foundational principle of direct-cost optimization is simply to avoid overpaying. Activities typically include negotiating better rates and terms with existing suppliers, qualifying new vendors, optimizing sourcing strategies, and leveraging economies of scale with strategic suppliers. In tandem, the company can also reduce costs (as well as its carbon footprint), by adopting energy- or water-efficiency measures or by redesigning packaging. Specification optimization can yield substantial savings by, for example, reengineering products to require fewer or cheaper inputs.
Advanced capabilities can dramatically improve a company’s understanding of its entire supply networks, increasing cost transparency and strengthening operational resilience. Cleansheet and “should-cost” modeling can bring transparency to suppliers’ own cost bases—and potential improvement opportunities that generate more value for both sides in the supply relationship. Strategic sourcing capabilities dynamically reexamine existing supply chain structures and make-versus-buy decisions. Improved business continuity planning and dual-sourcing practices provide needed agility during periods of disruption.
Increase yield on inputs. Many companies start this effort by focusing on two powerful metrics: increasing “right first time” (RFT, referring to error-free production) and reducing “cost of poor quality” (COPQ). But as important as these indicators are, they alone cannot sustain improvement over time, as performance often plateaus (or even reverts should management’s attention waver). The highest-performing companies instead treat product quality and right-first-time as two elements of a consistent, enterprise-wide approach to continuous improvement.
Traditional lean management practices, for example, have long sought to reduce waste and improve efficiency to get the most out of raw materials, recognizing, for example, that any rework, defects, or scrapped products use more inputs for the same output. By fostering a culture of problem-solving and standardization, high performers optimize yield while embedding quality into every aspect of their operations. This mindset extends to the way top organizations apply technology: not as a keeping-up measure but as an innovative tool that, thoughtfully deployed, provides more ways to reliably produce to specification.
Reduce indirect costs. Top performers optimize all indirect spend that supports operations, covering everything from utilities to back-office support functions. As with direct costs, foundational approaches to indirect-cost reduction center first on price or rate reduction, such as by developing preferred vendor relationships. Usage reduction, in the indirect-costs context, is primarily driven by demand management, such as through zero-based budgeting and enforcement of spend policies. Specification optimization applies to indirect costs as well: Reexamining assumptions about office-space requirements or marketing practices can lead to entirely new standards that better reflect real needs.
Labor productivity: Increasing output per hour of work
The second source of productivity comes from labor. By integrating productivity improvements into a broader operations strategy, companies can help ensure that they are making the most of human capabilities, with judicious investment in employee development and workplace optimization.
Boost direct and indirect labor productivity. Companies can enhance the efficiency of production workers by more rigorously defining standard work, rebalancing and streamlining workflows, improving performance management, strengthening employees’ problem-solving capabilities, and optimizing support functions to increase overall direct-labor output. In support roles, companies can minimize non-value-added tasks and redeploy employee time toward solving complex problems—with help from increasingly capable technologies, such as AI agents.
Elevate talent stability. Invest in advanced tools and practices that allow the COO and other senior leaders to understand the company’s talent metrics with the same breadth and depth as operational, quality, and safety metrics. Given increasingly urgent needs for strategic workforce planning, “talent stability”—a company’s ability to attract, retain, and especially engage its workers—has assumed strategic importance. Companies that invest in comprehensive development opportunities, such as online instruction, classroom training, and life-skill development, see significant improvements in employee engagement and retention.
Unilever illustrates how a more thoughtful, integrated approach to labor productivity can have dramatic results. At a factory facing serious production shortfalls, the company rolled out a new reward program that provided small financial incentives for meeting new production and morale targets while encouraging problem resolution. Absenteeism fell by about one-half, productivity improved by more than 10 percent, production waste fell by more than one-quarter, and revenue rose by more than 20 percent.
Recent McKinsey research shows that prioritizing talent investment over labor cost cutting more than doubles the likelihood of achieving outsize gains in productivity and total shareholder returns. By investing in workforce skills, leveraging technology, and optimizing workflows, businesses can attain higher output per employee while maintaining quality and fostering employee engagement.
Asset productivity: Increasing output per hour of machine time
COOs have long sought to squeeze more output from machinery and other assets, assessed through metrics such as overall equipment effectiveness (OEE). While it may never be possible to match asset capacity exactly to production demand, the highest-performing companies are relentless in their aim to improve OEE through targeted and continuous improvement efforts.
The three variables that OEE measures on any machine—availability (the percentage of production time that the machine is operational), performance (its production speed compared with its theoretical maximum), and quality (how much of its output meets quality standards)—describe three opportunities. In each, the objective is to increase the value a machine generates without sacrificing product quality or machine performance. Conversely, since machines are typically designed to produce a particular quality at a particular rate, a decline in performance on any of these three variables has a real financial impact, as it absorbs capital without producing expected results.
Optimize availability. An asset’s availability is usually determined by planned production times and how effectively these times are utilized. “Total required availability” aligns supply with demand at the aggregate level and is also influenced by the ability to run assets continuously through shifts, including during lunches, breaks, and shift changes. Planned downtime is typically due to changeovers, such as from one product to another, with unplanned downtime due to breakdowns. These losses are typically addressed through tailored initiatives to compress changeovers, which can range from standard exercises, such as single-minute exchange of dies (SMED), to redefined standard work and improved performance management. Operations leaders can also find new approaches to increase asset reliability, including through refined preventive and predictive maintenance programs and enhanced root-cause problem-solving capabilities.
Increase performance. During run time, asset productivity is vulnerable to speed loss and minor stops. The former is typically addressed by setting asset speeds according to maximum validated standards. Minor stops, however, can be more elusive to solve, as they manifest as dozens or hundreds of micro stops that are individually small but collectively large. These types of losses are promising opportunities to address with the use of newer technology sensors, data analytics, and AI to both characterize loss reasons and foster root-cause problem-solving.
Improve quality. From an asset perspective, a 10 percent finished scrap rate is equivalent to 10 percent lost capacity from a productivity perspective. When factoring in machine wear and maintenance, scrap’s impact is even worse than downtime, as the asset experiences the wear without delivering a shippable product. Ensuring all production meets specifications to eliminate rework and waste not only improves material and labor productivity but also increases the productivity of the asset. Additionally, if a product that fails quality assurance escapes the plant, it becomes a service or product problem for the customer, potentially harming revenue and, eventually, ROIC.
Technology as a catalyst for productivity gains
The tools and technologies driving productivity today are light-years ahead of what was available only a few years ago. We are firmly in the midst of the Fourth Industrial Revolution, arguably the most transformative era in production history. Each industrial revolution has introduced groundbreaking advancements that reshaped industries and societies: steam-powered, mechanized production; electrification-enabled mass production; and automated, streamlined processes. Now, the Fourth Industrial Revolution is unlocking the power of data, the Internet of Things (IoT), advanced robotics, and AI. Industry leaders that are effectively leveraging and scaling these technologies are driving unprecedented levels of efficiency, agility, and innovation—reshaping not only their industries but also economies on a global scale.
This revolution is not about incremental improvements; it represents a seismic shift in how businesses operate and create value. For example, predictive maintenance powered by IoT sensors and machine learning has transformed asset management. Companies like GE and Siemens use digital twins—virtual replicas of physical assets—to monitor performance in real time, predict failures, and optimize maintenance schedules. These innovations have significantly reduced unplanned downtime and maintenance costs while extending the lifespan of critical equipment.
Similarly, big data analytics is enabling manufacturers to optimize production processes with unparalleled precision. Procter & Gamble, for instance, has leveraged advanced analytics to enhance supply chain efficiency and reduce waste. By analyzing data from production lines, it has identified bottlenecks, improved throughput, and ensured consistent product quality.
Another hallmark of this revolution is the transformative use of robotics and automation. Companies like Amazon have deployed fleets of autonomous robots in their warehouses, dramatically increasing order fulfillment speed and accuracy. These robots work alongside human employees, augmenting their capabilities and allowing the workforce to focus on higher-value tasks.
The Fourth Industrial Revolution is not just a technological shift—it is a productivity revolution. By harnessing these advanced tools, businesses can open new frontiers of growth, redefine how value is created, and position themselves to thrive in an increasingly competitive and dynamic global economy. To fully realize this potential, the best organizations design for at-scale execution from day one, with COOs playing a critical role in identifying the right technologies to solve bottlenecks, drive productivity gains, and ensure seamless transitions from pilot phases to broader deployment without losing momentum.
Shaping the COO agenda: Delivering strategy
Execution is where strategy becomes reality, particularly in the form of ROIC. To succeed, COOs should embed operational excellence throughout the organization, from procurement and supply chain through to distribution and digital and analytics capabilities. The impact depends not on a particular tool or technology but on consistency and commitment: establishing clear accountability mechanisms, conducting regular performance reviews, and fostering a culture of continuous improvement.
For example, a mining company facing performance challenges rooted in a top-down culture made significant gains by empowering frontline teams to drive bottom-up innovation. Numerous small process improvements collectively increased production by over 10 percent annually for three consecutive years while reducing water usage by 7 percent—a critical achievement in a drought-prone region. Similarly, a payments business transformed its front and middle office by eliminating operational friction and building innovative capabilities. This effort not only improved customer experience but also delivered a $300 million revenue uplift and a 30 to 35 percent boost in productivity.
Examples such as this one underscore the transformative power of disciplined execution. By aligning productivity initiatives with strategic priorities and embedding operational excellence into the organization’s core, COOs can deliver tangible, lasting impact. A relentless focus on execution—supported by data, accountability, and a culture of improvement—can enable organizations to reach their full potential and achieve sustainable growth.
To consistently deliver such results, the most successful COOs embrace this challenge with a clear focus on six actions:
- Remain consistently focused on delivering the business strategy. The most effective COOs understand that productivity is not an isolated goal—it is a means to deliver the organization’s strategy. They use simple, clear metrics to measure success, benchmarking the organization’s performance against that of peers to ensure they stay competitive. And the insights they develop enable them to respond quickly and decisively as circumstances change, so that the business can maintain its strategy even under adversity.
- Have a holistic and nuanced view of productivity. Top-performing COOs recognize that productivity is multifaceted. They understand all its elements—labor, capital, and resource efficiency—and know which types of productivity are most critical to deliver their business’s strategy. Equally important, they avoid bias, encouraging productivity improvements across all functions, not just the ones where they have prior experience or success. And they recognize that leading productivity improvement often requires making difficult decisions: achieving outsize improvements in one area may require accepting short-term losses in another.
- Be relentless but not reckless. While COOs push hard for results, they must also uphold principles of safety, quality, and social responsibility. Productivity gains that compromise these principles are unsustainable and can erode the trust of employees, customers, and other stakeholders. The best COOs strike a balance, driving relentless execution without crossing critical boundaries.
- Balance near-term pressures with a through-cycle mindset. COOs inevitably navigate the tension between delivering immediate results and building long-term resilience. This requires a disciplined approach to prioritization, ensuring that efforts are concentrated on areas that deliver the greatest value. For example, a COO in a commodity-driven business might prioritize cost efficiency, while one in a customer-centric organization might focus on service excellence. End-to-end planning across the value chain—from procurement to customer service—ensures that productivity improvements are integrated and sustainable.
- Consistently look for new tools and enablers that yield a step change in productivity. The best COOs are relentless in their pursuit of innovation. They leverage cutting-edge tools such as digital and analytics, gen AI, and automation to unlock step-change improvements.
- Collaborate across silos as a foundation for success. Achieving productivity success requires COOs to foster deep collaboration with stakeholders across the organization. Productivity is not achieved in isolation—it demands alignment across functions to ensure operational plans support the company’s strategic objectives. By aligning efforts across functions, COOs can foster the continuous improvement and accountability that sustained productivity growth requires, and that turns strategy into real returns.
For example, partnering with marketing and customer experience leaders ensures that operations are aligned with customer needs, balancing tailored offerings with streamlined production to deliver value while managing complexity. Collaboration with technology leaders enables the strategic deployment of digital tools, automation, and analytics to enhance efficiency and throughput. Engaging with human resources and finance ensures the development of organizational capabilities, effective talent management, and financially sound investments that support productivity goals.
The next horizon of productivity demands bold leadership, relentless focus, and a willingness to challenge the status quo. COOs often hear that “the time to act is now.” For the productivity mandate, the time to act is always. Those who consistently achieve step changes in productivity position their organizations to not only survive but also thrive in the face of uncertainty. The question is not whether productivity can be improved, but whether COOs are ready to lead the charge.
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